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The Power of Google and Amazon Looms over Tech IPOs

After years of drought, a wave of technology start-ups — Uber, Lyft, Pinterest and more — are going public, proof that the industry is flourishing. But almost all of them have a shadow hanging over them.

google-and-amazon

Seventeen of the first 22 tech public offerings directed at raising $100 million or more over the past 18 months mention Amazon.com Inc. or Google— and sometimes both— as a rival or threat to their company. Many are operationally dependent on the cloud of Amazon, like cyber security software manufacturer Tenable Holdings Inc. Others, such as the Pinterest Inc. picture collection site, compete directly with one of the giants, Google’s image search in this situation.

Critics including the United States Senator Elizabeth Warren, Democratic presidential candidate, says big tech firms have created a “kill zone” that prevents startups from getting past a certain size without being bought or pushed out. But filings from newly-public tech startups indicate a more nuanced image is emerging: businesses can escape the “kill area,” but if they do, they are likely to otherwise beholden to the tech giants.

Consider Lyft Inc. The ride-sharing business requires individuals to download their app, so it turns to the world’s largest advertising scheme— Google’s Alphabet Inc. Lyft spent over $90 million on Google ads in 2018 alone. These advertisements sent individuals to app stores owned by Google and Apple. When they open the app, Google technology drives the map they see inside, which Lyft pays for as well. Many of the Lyft schemes are running on the cloud of Amazon— to the tune of $300 million in charges by 2021. In addition, through its investment arm Capital G, Google owns more than 5 percent of Lyft. It even has a board seat.

It’s true that large tech firms helped generate the present startup wave. Cloud suppliers such as Amazon Web Services enable companies to grow rapidly without their own server farms being built. Google and Facebook Inc. provide businesses with the ability to target and probable clients. But as the tech giants are expanding and entering fresh markets, they are disrupting smaller companies that they may have helped promote.

Fastly Inc., which specializes in a cloud computing niche form, has benefited from distribution partnerships with Google and Amazon, helping to raise more than $180 million in its May IPO. But now that Google and Amazon are expanding their cloud products, they are starting to compete with Fastly directly, the firm said in a May 6 filing. Chewy Inc., the internet pet food and supply chain, utilizes the cloud of Amazon but has regarded the e-commerce giant as a competitor since Amazon launched its own brand of pet products last year.

The tech giants have the ability to alter their services at any moment, causing downstream havoc. Pinterest has been nabbing free traffic directly from Google searches for years. But at the beginning of 2018, Google produced a tweak that meant that Pinterest picture pages did not show up in search outcomes, hurting online traffic and slowing customer development in the following months. Pinterest also utilizes tiny parts of code dropped in people’s browsers to know which advertisements each person should be shown. In its Safari browser, Apple has cracked down on this practice, and Google has also taken steps to restrict it on Chrome.

Developers of software have long complained that they are overcharged to use the app stores of the giants. These tolls are also being paid by newly public companies. Sciplay Corp., which creates portable casino games, received all income from Apple, Google, Facebook and Amazon in 2017 and 2018. The Las Vegas, Nevada-based business pays back to these businesses about 30 percent of its income for the privilege of appearing in their app stores.

The challenge for prospective trustbusters is how to rein in the authority of large tech firms without disrupting the web of companies that now depend on them.

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